Courtesy of Scott Martindale, Sabrient Systems and Gradient Analytics
After last week’s technical breakout on elevated volume, stocks have flattened and trading volume has waned as investors seem to be waiting to see whether there will be a pullback to test new support levels and the bulls’ conviction. I think the bulls are plenty convicted–not conflicted.
New round-number resistance-turned-support levels are at 13,000 on the Dow, 3,000 on the Nasdaq, and 1400 on the S&P 500. The S&P was the last to breakout and the first to test support. In fact, it has been testing support at 1400 every day since it broke out last Thursday. So far this week, there has been little movement in any asset class as investors hold their positions and wait for the next catalyst. Gold, oil, and the U.S. dollar are all slightly down, 20-year Treasuries are slightly up, and stocks and the U.S. dollar are mostly flat. But the fact remains that there is little incentive to invest in low-yielding Treasuries right now.
Among the ten U.S. sector iShares, Consumer Goods (IYC) has been the strongest this week through Wednesday, up about +1%, followed by Technology (IYW), Telecom (IYZ), and Consumer Goods (IYK), while Energy (IYE) has been the decisive laggard, down about -2%. The big leader of last week’s technical breakout was the Financial sector, and IYF still displays the best overall performance since then.
With banks standing on firmer footing, the Fed is now allowing those that pass their “stress test” to boost dividends and buy back stock. And they are doing so. Some like Citigroup (C) and Sun Trust Bank (STI) have not yet passed the test, but others like Bank of America (BAC), Wells Fargo (WFC), U.S. Bancorp (USB), and JP Morgan (JPM) are getting aggressive.
Again, I just can’t help but say something about Apple Inc. (AAPL) this week. It was just two months ago that I was talking about AAPL finally pulling back into a tie with Exxon Mobil in the largest-market-cap sweepstakes. Now the comparison is a distant memory as XOM has stayed flat at a little over $400 billion while Apple has soared 35% in two months to reach a market cap of over $560 billion.
As I pointed out last week, the “junk rally” phase we have been in might be foretelling an imminent pullback to “re-rationalize,” if you will….
